In a webinar on Tuesday, Accurium technical services manager Melanie Dunn explained that actuaries calculated a fund’s ECPI using a weighted average of what the retirement phase and accumulation phase balances in the SMSF were over the financial year; meaning, the higher a fund’s retirement phase balance was on average, the greater portion of funds fell under ECPI.
“We want to maximise our average retirement phase balance and minimise our non-retirement balance, so if we are looking at things that decrease the pension balance, like lump sums paid from retirement phase accounts, we make those as late in the year as possible,” Ms Dunn said.
“Things that increase the retirement phase balance like pension commencements, we make that as early in the year as possible. And with accumulation phase, anything that is going to increase that balance we make it as late in the year as possible, like fund contributions.”
Ms Dunn gave the example of Mark, who had a retirement phase account with a balance of $839,420, and Susan, with an accumulation phase balance of $404,225, within their two-person SMSF.
Susan had made two quarterly contributions of $5,000 and two quarterly contributions of $7,500 over the financial year, while Mark had made a payment of $33,600 at the beginning of the year.
The fund’s ECPI was calculated at around 66 per cent; however, if Susan and Mark had made all their contributions and lump sum payments at the end of the financial year, the ECPI would have been closer to 67.5 per cent, Ms Dunn said.
“As the exempt income proportion applies if you are realising significant capital gains within a given financial year, even small changes in the ECPI proportion can help significantly save tax, so it’s worth thinking strategically about how you plan your transactions for the year,” she said.
This was particularly true for major transactions on the retirement phase side such as pension commencements, rollovers or lump sum withdrawals, which would make the biggest difference to the ECPI percentage, Ms Dunn added.
